Question

	Corporation
	Income Statements (excerpt)
(dollars in millions)	2019	2018
Sales to customers	$71,890	$70,074
Cost of products sold	21,685	21,536
Gross profit	50,205	48,538
Selling, marketing and administrative expenses	19,945	21,203
Research and development expense	9,095	9,046
In-process research and development	29	224
Interest income	-368	-128
Interest expense, net of portion capitalized	726	552
Other (income)expense, net	484	-2,064
Restructuring	491	509
Earnings before provision for taxes on income	19,803	19,196
Provision for taxes on income	3,263	3,787
Net earnings	$16,540	$15,409

1. Horizontal Analysis
   1. Compute the difference in each line item from 2018 to 2019.
   2. Using 2018 as a base year, determine the change and percentage change in each line item from 2018 to 2019.
   3. Did sales to customers increase or decrease from 2018 to 2019?
   4. Did net income increase for decrease from 2018 to 2019?
   5. What line item(s) is (are) driving the differences between sales to customers and net income from 2018 to 2019?
2. Vertical Analysis
   1. Compute each line item as a percentage of sales for 2018 and 2019.
   2. Which line items makes up the largest proportion of sales in 2018 and 2019? (Keep in mind that some of the items like gross profit and earnings before provision for taxes on income are subtotals.)
   3. Comment of any changes in the income and expenses as a percent of sales from 2018 and 2019.

Answer 1